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https://hdl.handle.net/2142/87436
Description
Title
Essays in International Finance
Author(s)
Kim, Woojin
Issue Date
2006
Doctoral Committee Chair(s)
Michael S. Weisbach
Department of Study
Finance
Discipline
Finance
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Finance
Language
eng
Abstract
This study explores the motivations behind corporate control structures and new equity issues for a large sample of international firms and evaluates how their stock prices respond to analysts' recommendations. The first chapter investigates the relationship between ownership structures and the mode of acquisition. I find that targets with controlling shareholders are more likely to be engaged in a 'control stake acquisition' than a 'merger' thereby facilitating pyramidal control chains, much more so in Non-U.S. countries, but not within U.S. I also find that the returns to target minority shareholders and changes in combined firm values are still significantly positive in pyramidal acquisitions. These findings suggest that corporate pyramids may simply be a by-product of transfers of controlling blocks and private benefits in an economy where ownership is concentrated. The second chapter examines the extent to which investment financing and market-timing explanations motivate public equity offers. Our estimates imply that firms invest 18.8 cents in R&D and 7.3 cents in capital expenditures for an incremental dollar raised in an equity offer during the year following the offer, rising to 84.8 cents and 14.3 cents when the change is measured over a four-year period. However, firms also hold onto much of the cash they raised, and this fraction is higher when the firm has a high q. These results suggest that market timing as well as investment financing is a motivation for equity offers. The third chapter evaluates the value of analysts' recommendations in the G7 countries. Stock prices react significantly to recommendation revisions in all countries except Italy. We find the largest price reactions around recommendation revisions and the largest post-revision price drift in the U.S. Neither differences in the timing of recommendation revisions relative to earnings announcements nor differences in industry coverage explain the superior performance of the U.S. analysts' recommendations. Tests within a subsample of ADRs indicate that the most likely explanation for the superior performance is that the U.S. analysts are more skilled at identifying mispriced stocks than their foreign counterparts.
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